The gold price never seems to be far from the financial headlines. In recent years this has been because it has regularly hit new heights, but last week it was a fall in prices that was causing waves. It hit a six-month low on Friday afternoon, having plunged through the $1,600 an ounce earlier in the week – the first time it had breached this level since August.

Experts blamed a more buoyant stock market, and the growing confidence of both private and institutional investors, many of whom are turning their back on "safe" assets and seeking the higher returns associated with share and high-yield bonds.

What affects the price of gold?

The asset is regarded as a safe haven that holds its value in times of trouble. That is because it is considered to be a currency that cannot be manipulated, in the way that central banks can interfere with the value of their own notes by printing more, or by changing interest rates. They can't print gold. Gold has also been relatively inflation-proof, gaining in value amid wider price rises. Gold's last bull market was at the tail-end of the inflation surge of the 1970s.

Demand for gold has steadily risen since 2000, with much of it due to developing nations using their new-found wealth to fill their reserves with bullion. Increased popularity of gold jewellery, particularly in India, has also helped. Gordon Brown, of course, famously sold much of Britain's gold reserves – 400 tonnes – in 1999 when he was chancellor for between $256 and $296 an ounce. It then soared, eventually hitting a high of $1,895 in 2011.

So-called "gold bugs" – zealot investors – have speculated that the world is slowly returning to a de facto version of the gold standard.

What is the gold standard?

This was a global system in place for centuries that linked currencies to the gold price.

Britain effectively moved to a gold standard in 1717 when the government linked the currency to gold at a fixed rate. All major countries, except China, switched to the gold standard in the late 19th Century.

Britain first dumped the standard during the First World War only to return to it in the 1920s. It was further strengthened by the 1944 Bretton Woods Agreement, which created the International Monetary Fund. National currencies were linked to the US dollar that was convertible into gold.

The gold standard was abandoned in 1971 by President Richard Nixon. The era of "fiat money", allowing currencies to fluctuate based on confidence and to be influenced by domestic monetary policy.

Calling the top – or the bottom – of a market is a fool's game, but it seems unlikely that this is the end of a decade-long bull market in gold. In fact, the slump last week prompted an increase in buyers, as "bargain-hunters" looked to increase their exposure to this precious metal while prices had dipped.

Some experts suggested market conditions could propel gold prices far higher, perhaps as high as $2,000 an ounce. This is the view of Angelos Damaskos, who, it should be pointed out, is hardly an impartial observer, as he runs the Junior Gold fund.

He believes a dip in production may send the gold price on a fresh rally. He said miners have responded to the recent price falls by concentrating only on the highest-quality deposits, on which they earn the biggest margins. This will mean ignoring lower quality gold and closing down less profitable operations. This could cause a "supply crunch" which, while demand for gold remains strong from China and India, could buoy prices upwards again.

Other analysts point out that the confidence investors now feel could prove to be short-lived if debt problems rear their head in Europe again, while the political machinations around the US "fiscal cliff" have hardly been resolved in a satisfactory manner.

What should I do?

One way to back gold is by owning shares of mining companies, rather than simply buying the metal itself.

Historically the returns from shares of companies involved in the mining and product of gold tends to correlate strongly with the price of this metal, so when gold prices rise, so to the share prices of these companies, and vice versa. But over the past two years this has not been the case, and mining shares have certainly lagged behind the gold price.

One reason for this is a fear that gold assets could be seized from companies by governments in less stable parts of the world.

But some see this gap between share prices and the gold price as an opportunity.

This is certainly the view of BlackRock – the investment house that runs one of the biggest gold funds. A spokesman said: "Most funds that invest in gold will do so by owning a company that mines the metal.

"Gold shares failed to find their sparkle for a second year running in 2012. But if you believe in the bull market for precious metals and believe that gold prices will stay at least at their current levels, there should be a positive re-rating for gold shares at some point as they are so out of kilter with the price of gold bullion."

For those looking at funds, Patrick Connolly of adviser AWD Chase de Vere said the JPM Natural Resources fund gives considerable exposure to gold mining shares, but also holds oil producers, energy companies and those involved in the production of other base metals.

In contrast, the BlackRock Gold & General fund is more concentrated on gold mining stocks. But Mr Connolly points out that historically gold has not always been a safe asset, losing 65pc of its value in just two-and-a-half years after prices peaked in 1980.

How else can I invest?

Exchange-traded funds (ETFs) let you back the bullion price directly. Traded on a stock exchange like shares, ETFs allows investors to track the performance of a particular index or commodity.

ETFs are available for gold, silver, platinum and palladium. They carry low annual costs. ETFS Physical Gold, the largest in the UK at £5.5bn, has an annual fee of 0.39pc. It has returned 65pc over five years, according to Trustnet, but lost 9.9pc over one year.